Freedom Mortgage, one of the largest U.S. home lenders, is being punished by a government-owned mortgage guarantor amid concerns that the Mount Laurel, N.J.-based company is helping to enable unnecessary refinances of veterans' loans.
Effective July 1, Freedom will be restricted from issuing Ginnie Mae bonds with loans insured by the Department of Veterans Affairs intermingled with loans from other lenders, Ginnie Mae said Friday in a statement on its website. Buena Park, Calif.-based lender Sun West Mortgage Co. will face the same restriction, the agency said. Ginnie Mae guarantees mortgage-backed securities including loans backed by the Department of Veterans Affairs.
A Freedom spokeswoman didn't immediately respond to an emailed request for comment. A Sun West representative didn't immediately return a phone message.
Some mortgage firms have generated revenue in recent years through rapid, repeated refinances of veterans' loans, a process called churning that can make money for the lender but result in unexpected costs to the borrower, according to Ginnie Mae. Some lenders perform the refinances themselves, while others charge above-market rates, setting the servicemember up for the next refinance, the agency’s executives have said.
Ginnie Mae has taken multiple steps to try to slow the refinances. In February, the agency warned nine lenders that they were at risk of being kicked out of its main bond program because the securities they issued refinanced so quickly. In April, Ginnie Mae told two lenders, NewDay USA and Nations Lending, that they could only issue "custom pools" that aren't mixed with loans from other lenders, though Nations was allowed back into the primary program shortly thereafter.
Under the new restrictions, Freedom and Sun West will also only be allowed to issue custom pools. Such securities often get worse prices from bond investors.
Ginnie Mae said that Freedom's and Sun West's restriction could end as soon as next year if the rate at which their bonds refinance slows. NewDay's restriction could end as soon as October, Ginnie said.
Congress has also tried to tackle the issue. Legislation enacted in May included provisions designed to make it harder for lenders to churn veterans through multiple loans.